— Cow market remains strong.
— Calves stronger on weather, feeders struggling.
Fed cattle markets were slow to develop last week as little trade was
reported through Thursday. A small number of cattle traded between
$87-88 live, $138-140 dressed. A pick up in trade was expected Friday.
Early trade was $2-4 softer than the majority of market activity the
Slaughter volumes continue to be a problem with just 573,00 head passing
through packing plants two weeks ago, 10,000 head lower than the prior
week. Packers processed 471,000 head through Thursday of last week,
which was the first week that weekly slaughter exceeded weekly volume
from a year ago.
Feeders are also looking at Presidents Day taking a day out of their
normal weekly slaughter this week. So, they won’t need as many cattle.
The latest packer margin index shows packers losing around $44 per head.
Boxed beef markets were slightly softer with the Choice cutout falling
$2-3 to $142.70; Select was down to $139.98, making the Choice/Select
spread just $2.72. Trade volume was moderate. Beef production year to
date is 4.2 percent below a year ago.
The Feb. 1 Cattle on Feed Report due out last Friday was expected to
show strong placements into U.S. feedlots. The average analyst’s guess
was 110.5 percent of a year ago, out of a range of 100-118 percent
compared to last year. The number of cattle on feed is expected to be up
2.5 percent, and marketings down two percent from a year ago.
The probability of a smaller marketing total made analysts more nervous
than the potentially-large increase in placements. Some of the marketing
decline, versus last year, can be explained as one less business day,
however, the January total is set to be the smallest early year out
movement since USDA started keeping on-feed data. Anyone looking at
current carcass weights and impressive country leverage in the fed
market would certainly not conclude that a marketing backup problem
exists, however, the longer term balance sheet clearly points to
potential price danger somewhere down the road.
Andy Gottschalk, HedgersEdge.com, pointed out that the number of cattle
that have been on feed more than 120 days will be up seven percent over
last year and up 11 percent over the five-year average. His group
expects to see the market retest a $93 fed market, on a storm related
situation. But, he also expects to see growing inventory start to
conflict with demand. He said the industry will have a summer demand
base that will support a weekly slaughter of 605,000 head and that
available slaughter supplies will be much larger than that.
Slaughter cow markets have been seasonally stronger with top quality
cows in the mid-$50s. The 90 percent lean markets are also stronger,
suggesting there could be more room for slaughter cows. Ninety-percent
lean was trading at $154 mid week, and the 50 percent trim market was at
$54. The cow beef cutout was $115.87 last Thursday, was down $2.25 from
the day before. West Coast cow beef was trading between $89-91.
Last week’s calf market was called $1-3 stronger across the country as
spring grazing gets closer and moisture continues to inundate most major
spring grazing regions of the country. Feeder cattle prices weren’t as
fortunate as a continued lack of fed cattle profits and muddy pen
conditions force prices down mostly $1.
Stocker operators and even some backgrounding operations were heavily
demanding lighter-weight calves last week, according to auction barn
managers across the country. Stocker operators, particularly in the
western half of the U.S. are very bullish when it comes to spring
grazing prospects. In most major spring grazing areas, moisture is 15-30
percent ahead of the previous five-year averages, and that is spurring
on thoughts that stocking rates could be 10-15 percent higher than the
past few years. In addition, the longevity of the grazing season could
be extended by as much as a month to six weeks longer than normal,
particularly in the southern Plains and Southwest, rangeland specialists
Backgrounder demand was said to be spurred by the continuation of cheap
corn prices along with hay prices that are $10-15 per ton cheaper than
the past couple of years. On the corn side, March futures were still
below $2, with several instances of $1.95 cited last week. According to
commodity market analysts, old corn crop is still behind the near-term
futures contract 20-25 cents, meaning that some producers can purchase
cash corn between $1.65-1.70 per bushel, or $2.90-3.05 per cwt.
Not only is hay cheaper across the board, but the quality of hay needed
to feed backgrounded cattle doesn’t have to be very good, especially if
corn or another feed grain is being fed alongside. In some instances,
poor quality, stemmy hay is selling for $25-35, according to USDA hay
reporters from Midwest and Plains states.
Heavier weaned calves and yearlings were struggling to bring steady
money last week, as most cattle feeders continue to show $25-40 losses
on finished fed cattle. In some instances, calf feds have a breakeven
around $90. Analysts said, however, the percentage of calf feds in the
slaughter mix right now is barely in double digits.
Also, demand from feedlots was deteriorating due to muddy conditions and
extremely cold temperatures resurfacing in a majority of the major
cattle feeding areas. Wet pen conditions and severe cold can lead to
extra health problems and a slow down in getting cattle transitioned to
full feedlot rations.
Futures also were struggling last week, and that trickled down to the
cash market. As of the close of business last Thursday, the March
contract was at $100.62 per cwt, after getting up past $102 earlier in
the week. Other Thursday closes showed April at $99.95, and May at
The CME cash feeder cattle index, for 700-850 pound steers was $103.89
last Wednesday, compared to $104.31 the previous Thursday. — WLJ